Gold Loans: Using Precious Gold As Collateral

Buy gold bullion, when you have money, they say, but what do you do when you don’t have money? The obvious answer is to sell, but who should you sell to and what if you are quite attached to your gold and you really don’t want to part with it but you still need the money? You can get a loan against gold in Australia by going to a pawn shop or gold dealer. Pawnshops popularly accept jewellery. It’s an easier gamble for it because if you default on your payment jewellery is an easy flip, but what if you have gold bullion bars or bullion coins, would a gold dealer is most likely your best bet.

Gold bullion can be used as collateral. It’s often something that High Net Worth Investors would have. Unlike pawn brokers, gold bullion is accepted as collateral from gold dealers. Especially investors who are looking to get 5 even 7 figure sums against vaulted precious metals like gold.

Gold collateral loans are considered less risky because lenders rationalise that gold investors will always want their gold back. Because of this, they usually charge lower interest rates. Some lenders will even roll up the interest at the end of an agreement. Other companies offer flexible credit lines using gold bullion assets where the total credit can be withdrawn or reduced throughout the whole length of the deal.

You can expect fast pay-out times and total discretion when you take out a loan against gold in Australia. There are no credit checks and reports given to credit agencies. It’s no surprise the how the gold loan market has grown over the years. The price of gold was phenomenal over the last could of years. Using gold bullion as collateral has the benefit that in the time that the gold is at the pawn shop, the price of gold could be going up. You might actually make more money by pawning the gold as you would be making more money because of the low interest and the year on year appreciation of gold.

Lending Process

Find a gold dealer that offers gold loans. Have a sense of what the price of gold is by having it valued and verified. The loan to total value rate should be 70-80% of the total asset value. The lender takes possession of the bullion and gets it secured. The lender only has possession of the bullion, but it still belongs to the borrower.

Advantages

There are various advantages for both the borrower and the lender.

As the borrower: you maintain ownership. Even though the gold is vaulted somewhere else you still enjoy the benefits of the rising gold price during the loan period. In a market with gold averaging 10-12percent yearly gains this can be helpful in offsetting or fully negating interest costs and fees.

Putting your gold as collateral, you avoid capital gains tax you may have to pay when selling the gold for quick cash. Borrowing money rather than selling does not raise any tax event you would have to deal with if you were to sell your gold. If you sell, you can’t benefit anything from the rise in gold prices, and besides, you would have to raise more money to be reinvested.

As the lender: precious gold bullion can be sold fast because gold is such a highly liquid asset. With a Loan To Value of 70-80% percent you can still make up for any price drops gold goes through. So you can be sure to get all the funds no matter where the market stands.

Despite the growing popularity of gold, loans against gold in Australia is a specialist market that only a handful of players. Not every gold dealer can do it, so you need to take extra special precautions to get the right lender who will give you a loan at reasonable prices and terms you can live with.